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Bank vs Non-Bank FD Investments
Posted on Thursday, April 24th, 2025 | By IndusInd Bank
When you are looking to invest funds into a fixed deposit (FD), there is a list of criteria you use to review the FD. This may include interest rates, payout options, reputation of the institution, and more. However, there is another major factor that determines how well you can optimise your FD funds, and that is the type of institution from whom you are opting the FD. While banks are usually preferred for FD investments, one can also opt for non-bank FDs, such as corporate FDs.
If you are wondering which of the two is suitable for you, here’s a comparison guide to help you.
What are Bank FDs?
First, let’s understand bank FDs in detail.
- These are FDs offered by scheduled commercial banks as described by the Reserve Bank of India (RBI). As the banks come under the purview of RBI, their product offerings, like FDs, are also regulated by RBI.
- Bank FDs are known for their safety, reliability, and stable interest rates. You can open a fixed deposit with a bank and rest assured about the safety of your money. In addition, your funds are also insured up to ₹5 lakhs by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
- A bank FD will offer interest rates as per the repo rates set by RBI. In case of an urgent requirement for funds, you can also make a partial withdrawal of your FD funds. Some banks may levy a small penalty in that case.
- Bank FDs also come with flexible tenure options, with a maximum tenure of up to 10 years.
What are Non-Bank FDs?
- These are FDs offered by Non-Banking Financial Companies (NBFC) and other corporate entities. The functioning of these FDs is similar to those of bank FDs. One must note that non-bank FDs are likely to offer higher FD interest rates.
- However, non-bank FDs may carry a higher level of risk as compared to their bank counterparts. To gauge the risk of non-bank FD investments, you must check the credibility ratings of the institution issuing them.
- Non-bank FDs come with similar features as bank FDs, such as flexible tenure, payout options, and more. However, non-bank FDs may come with stricter rules regarding premature withdrawals.
Bank Vs Non-Bank FDs – A Detailed Comparison
Let’s look at the major points of difference between bank FDs and non-bank FDs:
| Parameter | Bank FDs | Non-bank FDs |
| Returns / Interest Offered | These offer stable interest rates; the rate may differ from bank to bank but falls within a certain range. | Offer comparatively higher rates due to ‘credit risk’. The higher the credit risk, the more may be the interest rate. |
| Safety of the Funds | Bank FDs provide more security for your funds. Banks are highly regulated by RBI, and your funds are also insured up to ₹5 lakhs under DICGC. | The safety of funds in a non-bank FD depends on the credibility ratings of the particular institution. Ideally, NBFCs with AAA ratings from credit bureaus are considered the safest. |
| Factors to Consider | Interest offered, payout options, premature withdrawal penalty charges, ease of opening, and so on. | Interest rates, credit risk, credit ratings, premature withdrawal charges, etc. |
| Liquidity | Bank FDs offer better liquidity; premature withdrawals are allowed at nominal penalties. | While premature withdrawals are allowed, the charges for the same may be higher. |
Bank FD Vs Non-Bank FDs – Which to Choose?
If you are wondering what kind of fixed deposits you should go for, let the below points guide you:
1. If the safety of your funds is your priority, consider opting for a bank FD with guaranteed returns and deposit insurance.
2. If you are okay with taking on a certain level of risk for higher returns, then you can opt for a non-bank FD with a high credit rating.
3. You can also diversify your FD investments by opting for a bank FD and a non-bank FD simultaneously. This can help you balance risk and returns.
To know about the returns from your FD investment, use an FD calculator. Enter the amount, the tenure, and the two different interest rates, and check the difference between bank and non-bank FDs.
Also Read: Unravelling the Differences Between Savings Account and Fixed Deposit
Conclusion
Bank fixed deposits and non-bank FDs come with similar features. The major differences between them lie in the risks they incur and returns they provide. To ensure a wise decision, consider various parameters such as your financial goals, risk appetite, and liquidity needs.
If a bank FD is what you are looking for, look no further than IndusInd Bank. Open an FD account online in minutes, from anywhere and enjoy features like high interest rates, tax-saver options, auto-renewal benefits, multiple payout options, and more. Start investing now.
Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
